Monday, July 5, 2010

Why bulls make the most money

Going short may get trading profits, not big money: Here is why!

If you are short in a stock and that stock falls, what is the maximum potential profit? It is 100% assuming that the price touches zero.

Now, suppose a stock is overpriced at 100. You wait patiently for the market to correct itself. The price falls to 30. You buy the stock and this time slowly it crosses its early high of 100 as it touches 120 in another bubble like move. You make 400%.

This also applies to holding stocks during downturns. If your share is worth 100 and you hold it during a bear market, then finally it reaches 30. Now, you need a 330% return just to break even! This means, wise investors hold cash duting market declines.

For investors, the key to make money is to buy smart. That requires patience, lots of it.

During bear markets, people who have cash are able to buy blue chips at bargain prices. That makes money.
As a long term investor, your task is to make money over the long run. We know this is possible when you do not confuse trading with investing.

1 comment:

Devesh Dikshit said...

AS S&P500 is in an urge of a breakdown from key support level of 1040 as earlier mentioned by you s&p 1040 support= nifty 4675 support as ten fifteen days back we were in a chance of a break out from 5400 resistance possible those times but now very difficult as indian out performence nearly 10%is becoming little bit difficult for day traders like us as we are in range as market is not ready to go beyong 5400 and not to fall below 5200as u.s market in breakdown mode